Monday, November 12, 2007

Contemplating an investment in E*Trade?*%#@!

Surely you've seen that iPod Touch commercial featuring the song, "Music is My Hot Sex." That song is the work of a Brazilian band called Cansei de Ser Sexy which translates as, "tired of being sexy." That's exactly what's happened to the brokers. For the last five years, these stocks have been on a tear. They were like a "beautiful" woman that you met in dark bar and took home for one hell of a one-night stand. When morning came, you had a chance to really look at her and she wasn't pretty at all. Most of her was fake, and those parts that weren't were ugly in fact. E*Trade(ETFC) is now considered coyote ugly. It looks as if there are more writedowns on the way then they'd thought back on October 17th. So is the worst over? Maybe? Some analysts are predicting bankruptcy and it can't get much worse than that. Maybe not? Management once again guided lower, the fifth time in eight quarters. Looking at E*Trade's most recent monthly activity report for October, you'd surmise that this was a fairly healthy company. There will be the inevitable dead cat bounce, but I'm not talking about a trade. It's trading at 3x earnings and might might a good long term holding if they can avoid bankruptcy. This is a very hard call to make. A big, one-time, fixable problem is what every value investor love, but it's unclear if the term "fixable" applies to this situation.

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